ECONOMIC SITUATION OF PAKISTAN FROM JULY 2010 TO JANUARY 2011

IMF To Review Pak Economic Situation

ISLAMABAD - The International Monetary Fund (IMF) officials would review the economic situation of the country in order to provide a Letter of Comfort to Pakistan in their upcoming visit, as Islamabad requires Loc from IMF to get committed budgetary support from the multilateral institution. The governments several steps including rightsizing of the federal cabinet and proposed cut in pay of civil bureaucracy are some of the efforts of Islamabad to get Loc from the IMF , a senior official told The Nation. It might be mentioned here that multilateral institutions including the World Bank, Islamic Development Bank and the Asia Development Bank have requested Pakistan to provide a Loc to be issued by the IMF, as a precondition for the release of any committed assistance for budgetary support. The multilateral institutions would provide budgetary support for the coming fiscal year 2011-12 if Pakistan gets Loc from IMF. The IMF officials, who are likely to visit Pakistan in the coming ten days, would discuss the economic situation of the country and also discuss the suspended Stand-By Agreement Programmed with the government. Pakistan is currently on the IMF Stand-By Arrangement (SBA) that is stalled leading to the suspension of the last two remaining tranche releases (estimated at around $ 3.2 billion). Sources told The Nation that the government has already decided to cut the size of the federal cabinet besides considering other several options to reduce its expenditures. The government was left with no other option but to reduce the pays of the civil bureaucracy and to give two holidays a week in order to curtail its expenditures, as it could not reduce the defense budget and amount given in shape of interests or loans.

''Pakistan FDI likely to rise in second half''

LONDON (February 11, 2011) Foreign direct investment in Pakistan could return to a positive trend this year, but militancy is a deterrent to investors, the country's investment minister said on February 10.2011. Floods last year caused nearly $10 billion in damages to Pakistan, and the country's costly war against Islamist insurgents has also weighed on its efforts to attract foreign investment. Foreign direct investment fell 15 percent in the first six months of fiscal year 2010/11, to $830 million. But Saleem Mandviwalla said the end of the global

recession would help growth and investment into Pakistan. "I feel (FDI is) a very cosmetic fall. I can see the graph now moving towards the positive side," he told Reuters in an interview. Mandviwalla was in Britain to meet investors. Britain is Pakistan's second largest trading partner and Mandviwalla earlier told an investor conference that he would like to see Britain double its trade with Pakistan in the next five to 10 years. But he added many investors were scared to go into Pakistan due to militancy levels. "Our problem is basically terrorism. It's a very uphill task for me to talk about investment in this environment," Mandviwalla said. "It brings us down, we sometimes wonder how we will reach our goals that we set out every day to reach," he told the conference. The government has revised its 2010/11 GDP growth forecast following the floods, to 2.5 percent for the fiscal year ending June 30, compared with an earlier forecast of 4.5 percent. Growth was 4.1 percent in 2009/10.

Pakistan's foreign exchange reserves fall to $17.31 billion

KARACHI (February 11, 2011) : Pakistan's foreign exchange reserves fell to $17.31 billion in the week ending February 5, down from a record $17.38 billion the previous week, the central bank said on Thursday. Reserves held by the State Bank of Pakistan (SBP) fell to $13.76 billion from $13.85 billion in the week ending February 5, while those held by commercial banks rose to $3.55 billion from $3.53 billion, said the SBP.

Inflation continues to persist at high levels

Inflationary pressures that were already considerably high at the beginning of FY11 have remained at an elevated level during H1-FY11. Not only did some of the contributing factors of inflation continued to prevail, the economy also experienced an additional shock in the form of devastating floods. Similarly, despite adjustments in the prices of electricity and gas, the larger issue of energy shortages has yet to be resolved. This is contributing to the underutilization of existing capacity and discouraging new investment in the economy.

Inflation Indicators YoY Jun-10 Dec-10 CPI Headline Food group Non-food group Core Measures Non-food non-energy 20% Trimmed 12.7 14.5 11.2 10.4 11.7 15.5 20.4 11.4 9.5 13.6 Average H1-FY11 14.6 18.5 11.3 9.6 12.5 FY111 15-16

Gross Domestic Product (GDP)

GDP growth was hit extremely hard by the global recession-1.637%growth in 2008- and was beginning to show signs of recovery with 3.368% in 2009 and pre-flood provisional estimates of 4.792% growth in 2010. Post flood, GDP growth will struggle to meet 2.75% growth for 2011. Pakistans Fiscal Year runs in midyear cycles.